Modern Portfolio Theory (MPT)

Set of concepts aimed at building a most efficient collection (portfolio) of different types of assets, based on the observation that although investors wanthighreturns they dislike high risk (likelihood of the deviation of an actual return from the anticipated return). It suggests that the risk of a particular investment comprising a portfolio should be assessed on the basis of how its value varies in comparison with the market value of the entire portfolio, and not in isolation. And that a diversified portfolio of investments is efficient if it yields highest possible return for a given level of risk or incurs the lowest level of risk for a given amount of return.